question archive LODH Company, must install safety devices throughout its plant or it will lose its insurance coverage
LODH Company, must install safety devices throughout its plant or it will lose its insurance coverage
Subject:AccountingPrice: Bought3
LODH Company, must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $700 000 to install and $130 000 to maintain annually. The second costs $1 000 000 to install and $70 000 to maintain annually. Each has a 10-year income tax life and a 10-year useful life. LODH's discount rate is 11 per cent, its marginal tax rate is 30 per cent and it uses straight-line depreciation.
Present value interest factor of an (ordinary) annuity of $1 per period at 11% for 10 years, PVIFA (11%,10), is 5.889.
Required:
(a) What is the after-tax cash flow for each projects?
(b) Which system should be installed using NPV DCF method?
